Binance Coin (BNB) is a utility token that can be used on the Binance Exchange. Its main use case is to reduce the trading fees on Binance. In order to find out more about the coin itself, we have to understand how Binance became one of the biggest crypto exchanges in the world in just one year.
Binance – from 0 to over 10 million users in one year
Binance was launched in mid-July 2017 after raising USD 15 million in several minutes during its initial coin offering (ICO). Its founder, Changpeng Zhao, better known as CZ, created Binance with the ambition to provide trading services to every single person on the planet. That goal is supported by superior technology, providing 1.4 million transactions per second, and multi-language support.
The name Binance is a combination between binary and finance and reveals the company’s main focus – to trade digital assets versus digital assets and not deal with fiat. The exchange achieved an incredible growth during its first year of existence and as of July 2018 there are over 10 million registered users on the platform, 143 supported coins and 370 listed trading pairs.
5 key reasons for Binance’s growth
1. The close relationship with NEO
Binance was founded in China but moved its headquarters to Hong Kong after the Chinese government banned cryptocurrency trading in September 2017. However, its Chinese origin has a huge role for the impressive growth of the trading platform.
During the early days of Binance, China’s first cryptocurrency Antshares, also popular as the ‘Chinese Ethereum’, was rebranded to NEO. Back then, Bittrex was the only big exchange that was providing NEO trading pairs, but it wasn’t supporting the distribution of GAS, the token that keeps the operations on the NEO network running.
Basically, when you buy 1 NEO, you are also buying 1 GAS, which is distributed to your wallet over time. However, those who were keeping their NEO on Bittrex weren’t receiving GAS.
On the other hand, Binance started distributing GAS to its users since day one. So, the fast-growing NEO community quickly realized that they won’t miss receiving this ‘free money’ if they just switch to the newly created Chinese exchange. In addition, the technology of Binance seemed reliable and the fees were lower, so one by one, namely the NEO investors were those who started the ball rolling and spread the word about this innovative exchange.
2. Binance Coin use case
The newcomers to Binance were introduced to BNB and its main benefit – to cut trading fees by half. The BNB token had a unique and easy to understand selling point, which attracted a lot of users. BNB is one of the few coins that have real world use case and a clear way to determine where its value comes from.
To put things in perspective, the fee on Bittrex is 0.25%, On Poloniex the taker fee is 0.2%, on Coinbase it is 0.25%, on Bitfinex it is 0.2%, on Huobi it is also 0.2%, while on Binance it is 0.1% and if you pay it with BNB coins, it drops to just 0.05%.
This may sound insignificant but for anyone who is trading regularly it is a huge deal.
However, during the second year, the discount when using BNB for fee payments will be reduced to 25%. It will be lowered further to 12.5% during the third year and to 6.75% a year later. After that, there won’t be any discounts.
3. Relatively higher withdrawal limits for unverified users
The third major reason why people started using Binance was because it has higher withdrawal limits for unverified users. For example, the daily limit for such users on Poloniex is USD 2000, while on Binance is 2 BTC per day. On Coinbase, you have very strict verification process, and you can’t even trade without sharing your identity. On Huobi, unverified users can withdraw just 0.1 BTC per day.
The appealing trading environment on Binance attracted many foreign users on the platform and helped for the global expansion of the exchange.
4. Binance matching engine
Binance is facing the same problems every cryptocurrency exchange has today – high performance of the exchange is not guaranteed and liquidity is uncertain.
Binance hasn’t resolved completely all of these problems yet but it definitely does one thing better than anybody else. The core matching engine of Binance is extremely fast with the capability of handling 1.4 million transactions per second. The response from placing an order to executing it is very quick and that’s why Binance is the highest liquidity provider in the world right now.
5. Binance business model
There are several aspects of the Binance business model that set it apart from the other exchanges out there. The first one is Binance Labs – a blockchain technology incubator.
The projects that Binance support through this initiative first and foremost are those with strong tech team, active GitHub Repo and working prototype. To the selected teams Binance offers full ICO advisory, including a technical architecture review, funding through BNB coins and a token economy structure.
The natural evolution for a project from Binance Labs is to be listed on Binance Launchpad, which is a token sale platform. The goal of the Launchpad is to give exposure to promising blockchain projects.
Binance supports projects aiming to raise maximum $20 million. Once the token sale is finished, they release those funds in batches. If the project achieves a predetermined milestone, it will receive part of the money. This way, if the team run away or don’t deliver its promises, the project won’t get all the money from the token sale.
Another part of the Binance business model that helps BNB to hold and increase its value is that Binance buys back and burns BNB tokens every three months. In accordance with their white paper, the latest burn was in mid-July when 2.5 million BNB tokens were destroyed.
This basically makes Binance Coin a depreciating asset and over time its initial supply of 200 million BNB is meant to become 100 million.
Last but not least, Binance’s referral program helped a lot for the exponential growth of the exchange. If you invite a new user to Binance through a referral link, you will receive 20% of their trading fees forever. If you hold 500 BNB in your account, your commission will be even higher – 40% of the fees.
Binance vs KuCoin and Huobi
- The utility tokens of those exchanges
Binance is practically competing with all cryptocurrency exchanges but I will compare it to two of them that have similar utility tokens – KuCoin and Huobi.
KuCoin’s token is called KuCoin Shares (KCS) and just like BNB it can be used as a discount for trading fees, but the model is different. For every 1,000 KCS you hold, you will receive a 1% trading fee discount with the maximum amount capped at 30%.
However, unlike BNB, KCS gives you a share from KuCoin’s trading fees. The Chinese exchange shares 50% of its profits with the KCS holders, so depending how many KCS you have, you will receive different amount of dividends.
Huobi launched its utility token – Huobi Token (HT) – in February 2018. It can be used as a discount for trading fees, too. However, its model is similar to a monthly subscription. You have to become a VIP member and buy a certain amount of tokens in order to receive a discount of between 10% and 50%.
For 10% discount you have to buy 120 HT per month and for 50% - 12,000 HT per month.
- New coin listing process
Another use case of HT is to give you voting rights for listing new coins on the Huobi Autonomous Digital Asset Exchange (HADAX). The more HT you have, the more meaningful your vote is.
The listing criteria for new coins on HADAX, which is part of the Huobi Global family, is similar to KuCoin’s but quite different from Binance’s.
KuCoin also has a voting system where the community decides which coins to be listed, but KCS holders doesn’t have any advantage over the other users.
On the other hand, the only way for listing a new coin on Binance is the founders to apply through a web form. And they have only one chance to do it because Binance won’t ask them for additional information.
The company doesn’t share the identities of its review team. The people in it are not allowed to have contact with project leaders, so once you submit your form you are either approved or declined.
Binance has crafted this procedure with the goal of preventing corrupted practices. CZ has stated that he had been offered multiple times millions of dollars to list a coin and he always replied, “No, submit a form”.
Once the review team analyses the submission, they put a score on the project and if the score is positive, the Binance business development team contacts with the project’s leaders for more details.
BNB – 220 times price increase for 6 months
Binance completed its ICO on July 2, 2017 after selling out 100 million BNB within several minutes. The average ICO price of a BNB token was USD 0.11.
As of July 19, 2018, the price of 1 BNB is some USD 13, the circulating supply is 95.5 million BNB and the total supply is 192.4 million BNB, according to CoinMarketCap data.
The all-time high of BNB was reached on January 12, 2018 when 1 BNB traded at USD 24.90, which is around 220 times higher than its ICO price.
Despite the strong decline since then, BNB lost significantly less value in the first half of 2018, compared to the other projects in the top 20 list by market capitalization.
The future belongs to decentralized exchanges
Changpeng Zhao’s vision for the future is that decentralized exchanges will overtake their centralized counterparts. However, he doesn’t know how long this will take. It won’t happen before a blockchain project can provide a reliable network supporting at least hundreds of thousands transactions per second.
Binance already has a team dedicated to the development of a decentralized exchange.
Anyone who believes that cryptocurrencies have bright future ahead and they will become more and more adopted by people should be aware of something - once you own a cryptocurrency, you will need a liquid exchange at some point.
In a world where cryptocurrencies are mass adopted, exchanges of some sort will undeniably be among the most used platforms. So, investing in the one that has definitely a head start over the others but at the same time is in its early stage of development could be a great long-term opportunity.
Binance is one-year old and expects to accumulate a net profit of USD 500 million to USD 1 billion for the whole 2018. However, quite a few people in the mainstream world have heard about this company. In addition, cryptocurrency trading volumes are ridiculously low compared to stocks. Imagine what would happen if cryptocurrencies became mass adopted.
I personally think that Binance is here to stay and BNB and other exchanges’ utility tokens will be among the best performing coins in the next couple of years.
The views and opinions expressed by the contributor in this text should not be considered financial or investment advice, neither treated as an expression of Cryptovest’s view. Neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.
Cryptocurrency trading and investing is risky and market participants are advised to always conduct a thorough research.
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